The EBA second mandatory exercise on Basel III full implementation shows a significantly reduced impact on EU banks with shortfalls nearly fully absorbed

EBA published its second mandatory Basel III Monitoring Report, assessing the impact of the full implementation of Basel III on EU banks in the year 2028. The assessment used a sample of 157 banks for its analysis. According to the report, the impact of Basel III implementation on the minimum Tier 1 capital requirements has significantly decreased compared to the reference date of December 2021. The impact of the reform has also been nearly fully absorbed in terms of estimated capital shortfall.
The report states that the estimated capital shortfall required for the entire EU banking sector to comply with the Basel III reform is EUR 0.6 billion. This means that the capital shortfall to meet Basel III requirements has been almost entirely eliminated, taking into account the economic impact of the Covid-19 pandemic up to December 2022.
The report provides an overview of the results, indicating that the minimum Tier 1 capital requirement for European banks would increase by 9.0% with full Basel III implementation in 2028. The main factors contributing to this increase are the output floor and credit risk. The requirements for different groups of banks, including G-SIIs and Group 2 banks, would see varying increases in their minimum Tier 1 capital requirements.
The report also includes an annex that assesses the impact of the proposed EU-specific adjustments to Basel III, as outlined in the revised CRR 3. It presents two scenarios, one with the main Basel III buffers, and another that includes Pillar 2 requirements and all EU capital buffers.
The report emphasizes that the impact assessment is not directly comparable to the previous year’s exercise (eventid=17685), and Table 6 (page 19) of the Basel III Monitoring Report should be referred to when comparing results over time.
In addition to the impact on different bank groups, the report also provides results for different business models, categorizing banks into ‚universal,‘ ‚retail-oriented,‘ and ‚corporate-oriented and other‘ models.
The report concludes that the impact of Basel III on EU banks has significantly reduced compared to previous assessments, with most shortfalls nearly absorbed. The report offers a dynamic visualization tool for exploring the results, and it advises caution when interpreting data from this tool.